Screen Wars

October 5, 2016

The lack of sufficient cinema screens is hitting the Hindi film industry where it hurts most – revenue collection. Is there a solution?

Our country produces the highest number of movies every year. We have multiple states and many languages, and filmmakers make movies in every language. So here’s the BIG question: while we produce the highest number of movies every year, do we have enough screens to show them?

Every state has cinema halls that screen movies made in their respective languages. There are states where it is mandated that, a cinema owner must screen a certain number of regional movies to promote regional cinema.

Even if there are avid fans of Hindi movies across the country, there are some states where a section of the audience prefers to watch cinema from their own region. This begs the question: are there enough screens to accommodate regional and Hindi films?

Time and again, whenever it is announced that two films will release on the same date, the question uppermost on everyone’s minds is: which movie will bag more screens? Which one will get the better screens? Which one will be assigned better timings?

Amid the race to put out the right trailer, and get your marketing and promotion right, a filmmaker is invariably drawn into the screen wars. Yes, it’s a tough battle to fight but there is no escape.

A filmmaker is a creative person. It is his or her job to make movies and then hand them over to their respective distributors, to take care of what they have made. However, in the recent past, we’ve seen filmmakers get sucked into the chase of bagging better cinemas and screen timings.

Why is this happening? And how can it be rectified? The answer is simple – the country that makes the highest number of movies every year needs many more cinema screens.

On one hand, while the number of single-screen cinemas is fast dwindling, the multiplexes are not growing as fast as expected. It was once said that most single-screens would turn into multiplexes, which would solve the crunch of screens. Sadly, that’s not happening.

Today, with growing ticket prices and availability of pirated movies, movie-goers are looking for movies and cinema halls that are worth the pretty penny they’re spending on the experience. Multiplex owners are left with no choice but to serve up an experience that lives up to expectations. This takes considerable investment, which in turn slows the growth
of multiplexes.

In this section, we have asked the experts to share their thoughts on where we are lacking and what we can do about it. Read on:

Devang Sampat, Business Head, Strategic Initiatives, Cinépolis

While multiplexes have been growing at a consistent rate, adding 200 screens every year, single screens have been shutting down at twice that rate. From under 10,000 screens in 2011, there are now less than 9,000 singles in the country, where the multiplex industry has added more than 750 screens.

Total number of screens in India has reduced over the years as single screens are shutting quickly, whereas the growth in multiplex screen space has correspondingly not kept pace. If you compare the growth with Cinépolis, we have grown with a CAGR of 54 per cent over the last five years, which is a remarkable achievement.

As a company, we have been able to establish ourselves across all the regions in the country. The graph shows the distribution of our screens.

Single screen theatres face huge logistics issues. For instance, the issue of parking spaces and other entertainment and leisure activities combined with the outing experience. For a single theatre to capture maximum footfalls, they require blockbusters to pull the audience to the property.

A KPMG report suggests that while the metros and the national capital region contribute 60 per cent of total box office collections in India, they have reached a point of saturation and the next phase of growth is expected to come from Tier II and III cities. As of now, only a fourth of multiplexes are situated in the smaller cities.

The industry was estimated to grow at a much higher rate than the current growth, which holds true for Cinépolis as well. We are largely dependent on the mall developer to provide the right ecosystem and develop the multiplex. We have seen limited opening of malls in the country over the last few years, subsequently resulting in slower opening of multiplexes. Funding for the real estate industry has also been a major issue in the recent past.

Licensing and taxation is another major issue, for the industry. The authority regarding the licensing and taxation is not very clear between the central and the state government in the country. This adds extra bother to the exhibitors in terms of getting the license clearance on time.

We need to work more closely with real estate developers to create the right environment for the growth of the industry. We need to also principally get involved in the planning phase of all the projects. Also, shifting of all cinema licensing and taxation to the central government from the current system would help.

Getting permission to open a multiplex remains one of the biggest challenges for expansion in the exhibition sector. Several spaces are ready in various parts of the country, awaiting licenses to commence operations. We need more than 40 licenses to open a multiplex. Different states have different approval process to get these licenses. It is a major challenge for the industry.

The proprietors of single screen cinemas and multiplexes are trapped in a face-off between the authorities and the state government over the issue of licensing authority of the multiplexes. Attainment of permissions to open a multiplex remains a huge challenge in the sector’s expansion.

Currently, entertainment tax levy on food and beverage revenue is high in the entertainment sector. Lack of uniformity in tax rates across states adds to the tax burden of the exhibition industry. The entertainment tax at present ranges from 30 per cent to an astronomical 70 per cent across different states. With the new GST tax rate, multiple taxes will reduce to a unified tax regime. This will lead to alignment of our businesses across the country and eventually increase revenues.

Certainly, acquisition helps in multiple ways. It helps to expand and reach the territory at a much faster pace than organically, due to slow pace of new real estate players. Advertisers can reach more eyeballs across Tier II and III cities due to mergers and acquisitions, ultimately increasing advertising revenues.

It helps in creating a better value chain for consumers and distributors, helping them connect with each other easily in terms of releasing the content across regions. Another factor is the improved product mix that multiplexes implement after the acquisition. It adds more value to the combined entity than either individual company can produce on its own.

Multiplex companies present a picture of healthy consolidation as they have recorded a significant improvement in their revenues per screen per quarter and operating margins after expanding inorganically over the past three years. EBITA of multiplex player is equivalent to the share of advertising revenue. The merged entities do result in increased revenue and growth for the multiplexes.

It costs Rs.2.5 crore to build a new screen but the cost of acquiring a screen is at least three times higher. It requires more effort to establish the standard process across the acquired screen as we need to change the mindset of the operations team through extensive training programmes. Some players in the industry have to take a large debt to acquire screens, increasing their debt-to-equity ratio.

Kamal Gianchandani, CEO, PVR Pictures

Currently, India has only seven screens per million people, China stands tall at 23 and is growing at about 4,000-5,000 screens annually. The US, which is the most mature market, is at 123 screens per million people.

India is one of the largest producers of movies, with more than 1,000 films being made annually. However, India is still an under-screened market compared to its counterparts, especially considering the number of films that release every year, including mainstream Hindi cinema as well as regional, Hollywood and speciality cinema. Lately, the market has been driven by content a lot more than it was a few years ago. An upsurge in the popularity of Marathi, Punjabi and even Gujarati films is a clear indicator of the abovementioned phenomena.

The main reason for lack of growth in India is the slow growth of retail infrastructure (especially malls). This is even more apparent in Tier II and Tier III towns. Since the growth rate is slow, the available retail infrastructure becomes very expensive to acquire. The other main reason is a very high entertainment tax structure in our country. The average entertainment tax payout in India for a multiplex operator is about 27 to 28per cent, whereas in China, cinema tickets are taxed at 10 per cent and in the US, it’s 10 to 12 per cent.

Our capital cost structure to develop a multiplex facility and the operating cost structure to run the multiplex and serve our guests tends to be more or less the same (except manpower cost). However, our ability to charge for our services is fairly restricted.

In India, the Average Ticket Price (ATP) is around Rs.87.5 (US$1.25), whereas in China it is US$5.80 and in the US, $8.43 (all figures for CY 2015). In addition, there are artificial restrictions in many states such as restrictions on the number of shows that can be played in a day/screen and the ticket price that can be charged. Moreover, rampant piracy remains our number one challenge and a staggering amount of revenue and jobs are being lost in India due to this. The part where we score over the other countries is the occupancy rate of our admissions.

Fortunately, we have a strong government at the Centre, with a clear mandate from the citizens, and with a decisive leader at the helm. There is a visible change in the government’s approach towards the film business and with GST becoming a reality in FY 2017-18, we hope a lot of entertainment tax and other tax related issues will subside.

We are regularly following up with the central and state governments for strict laws and committed enforcement with respect to piracy. In addition, many multiplex operators are closely looking at remodelling their economics in order to develop a product that can suit the taste and budget of Tier 2 and 3 towns and which can also be developed independent of malls i.e; on a standalone basis. We do believe that all of these factors will contribute to a much faster pace of growth, going forward.

Cinema is a state subject and heavily regulated by the state governments. While the rules and norms are fairly standardised in all states, the challenge is the red tape due to multiplicity of permissions or NOCs that an operator needs to secure to develop and launch a cinema. Many permissions are also required (on an annual basis) to operate the cinema, which means a lot of resources
need to be allocated for this purpose.

Additional restrictions that states impose (or can impose) on a cinema such as the restriction on the number of shows being played and capping the ticket price that can be charged are our other challenges and risks.

We operate both multiplexes as well as single screens as a part of PVR Cinemas’ chain. I must admit that there is a visible change in consumption pattern, where audiences prefer the choice and convenience of a multiplex vis-à-vis a single screen. This is putting pressure on the economic model of single screen theatres and as a result, there has been a consistent decline in the number of single screens over the last 10 years.

There are many single screens that have invested resources, on a continuing basis, in upgrading their cinemas in terms of projection, sound, screen, seats, lobby ambience, F&B offerings etc, along with improving their service standards in terms of customer safety and security, the cinema team’s training, cleanliness, friendliness and knowledge.

For many people, the experience of watching a wholesome entertainer on a giant screen cinema is still unmatchable. All such single screen operators, who have invested in upgrading their facilities and have improved their service standards, are being suitably rewarded by the cinema-going audiences.

As shared earlier, the biggest bottleneck for cinema exhibitors is the slow overall growth of retail infrastructure. The lack of growth is more apparent in Tier 2 and 3 cities. The other challenge is the high rate of power and high property taxes that cinema operators end up paying.

The main advantage of an acquisition or merger is optimisation of central overheads and other related costs.The other advantage to an operator is the size and scale one gains in the process. The size and scale has long-term advantages in terms of enhanced ability to improve product offerings and service standards, with a lesser per unit incremental cost.

PV Sunil, CEO & Director, Carnival Cinemas

One major problem is that single screen cinemas lack infrastructural support. Old cinemas, which are 30 to 50 years old, are in a shambles and also haven’t been able to upgrade to the latest technologies. The sound and projection systems have not been changed, especially in small centers which have a lower ticket prices.

There are various licensing issues along with government regulations which are from an altogether different era. So, basically, they have infrastructural problems and many are unable to upgrade to the latest technology. That’s how they are losing out.

Each state has different rules for cinema licensing and that is one of the biggest hurdles for exhibitors. There are new laws that have come into place but the infrastructure doesn’t support them. Also, it takes a lot of money to upgrade and maintain these cinemas. This can only be done with the help of the state government, which can offer subsidies to these cinemas.

Multiple taxes and exorbitant entertainment tax were gobbling a very large chunk of profits. We are hoping the introduction of GST should help. The uniform GST will definitely help margins because, in many states, single screens are paying more than multiplexes in taxes!

With mergers taking pace in these changing times, it is a huge plus. This ensures brand association along with technological upgrades. With mergers and acquisitions, you become part of a bigger brand. Having said that, and this is my personal experience, it becomes a loss-making venture if the new owners do not preserve the charm of the old single screen.

With international content along with regional content making it big at the box office, the opportunities to gain business are huge. Today, we have content in every genre in many languages. We can only hope that licensing procedures for cinemas improve and GST brings in much-needed uniformity in taxation.

I believe the growth percentage has been very decent considering the regulations that the multiplex industry is engulfed with. In 15 years of its existence, the multiplex industry today has the maximum number of screens in the country than before and it is growing at a very steady pace, each successive year.

Easy regulations will definitely play a significant role in increasing screens. Even to this day, we have just about eight to nine screens per million people in the country. The scope to expand is huge.

Cinema exhibition in India is a state subject. Government regulations differ from state to state. We believe that regulations should be brought under a single umbrella.

In order to open a multiplex, there are a number of licenses that are needed. It will be helpful if there is single window clearance for licenses and all other necessary government authorisations.

Restrictions in ticket rates in certain states also pose a threat to the overall growth of the multiplex industry in the country.

Multiplexes largely operate on leased premises and incur significant costs on rentals and infrastructure, on which exhibitors pay service tax. In the absence of any significant service tax or excise liability on output, the service tax paid on input is not available for set off, and hence, expenses are high.

Like any other industry, multiplexes depend heavily on stipulations of the government. With change in policy every year, this sector has witnessed minimal growth.

In addition to the abovementioned problems, the need for a single window clearance and bringing the necessary regulations under one umbrella, piracy is another major issue that is nibbling into the industry. Along with the government, the industry has taken major steps to control piracy in India. It’s a concern but we are trying our best to stop it.

There are dozens of theatres ready in various parts of the country, awaiting a license to start. Getting permissions to open a multiplex remains the single biggest challenge for expansion of multiplexes today since every state has a different set of rules.

Multiple licenses needed from multiple departments – fire & safety, to food, to electricity amongst many others. Single window clearance for all these licenses will ease the process of setting up a multiplex tremendously.

When companies come together through the mergers and acquisitions process, there are numerous issues that must be analysed to determine if the benefits of such a move outweigh the risks that are involved. Having said that, it adds more equity to the entity and opens up newer avenues for both companies. It is a cost-effective method to fuel expansion. It can create multiple growth opportunities.

INOX started the consolidation business in the Indian multiplex industry way back in 2007 by acquiring CCPL (Calcutta Cine Private Ltd) and its 89 cinemas. This was followed by two acquisitions: Fame India Ltd, in 2011 and more recently Satyam Cineplexes in 2014.

Satwik Lele, Chief Operating Officer, Mukta A2 Cinemas

If you compare the scenario five years ago to how things are today, you will find a drastic change in all aspects. Quality has risen to another level in terms of sound and projection, due to developments in technology. There are issues in getting licenses and permissions, also real estate development is slow and that’s the major reason for the slow growth in cinemas. There are many cinemas which are all set to open but due to license issues, they have to postpone it for months or sometimes even more than a year.

We are a country of movie-lovers. The number of films made every year and the number of screens across the country is a testimony to this fact. According to the Film Federation of India, there are over 10,000 screens across the country, which is the second largest in the world, only after the US and China. But not many movie-goers are aware of the rules that cinemas have to follow.

The Constitution of India puts cinematography both in the Union List and State List for different purposes. While the central government is given the authority to certify films for exhibition (Censor Board), the state government is given the authority to regulate cinema halls, the norms governing them, admission fees in etc. Seating, noise levels, toilets and water, show timings and show rules, acts and laws to be followed by theatres and safety are some really important categories we have to observe and are different in every state.

I remember there was a time when single-screen movie theatres were hallowed spaces. The ticket window, now known as box office, used to be treated as a holy place. In the late ’70s and early ’80s, it was all but impossible to get a movie ticket in open booking. For a film like Kranti (the biggest hit of 1981), there were no tickets available for 10 weeks.

The rush for tickets could cause traffic jams, and it was not easy for the police to handle the chaos around single screen theatres. In this day and age of online booking and multiple shows a day, this scenario might seem highly unlikely, and no one even thought that movie-viewing would become the spontaneous activity it is today, whereas earlier it was considered an occasion.

But times have changed and so have the fortunes of single-screen theatres. Today, they are widely considered a dying breed, unable to keep up with the competition offered by multiplexes, favoured by neither the trade nor viewers. Big cities such as Delhi and Mumbai have seen the shutting down of iconic theatres. In Meerut, there used to be 23 single-screen theatres through the 1980s and 1990s. Today, there are less than
a handful.

Multiplex exhibitors have to keep pace with timely technology upgrades and upgrading infrastructure comes at an enormous cost, digging a hole in operating profits. This, while the average ticket price remains stagnant. The cinema exhibition industry is categorised as a ‘SIN’ industry and thus exhibitors face issues with first acquiring a cinema license to run the business and then renewing the licenses annually

In Maharashtra alone, there are 100-120 small/big permissions and NOCs that have to be obtained to run a cinema. Need I say more?

Tinku Singh, Group President/CSO, SRS

India is a land of movies. It makes more movies than any other country, roughly around 1,500 annually. Indians are famously fanatical about movies and their movie stars. Yet, India is plagued with various maladies affecting the movie business.

With just one screen per 96,300 residents, it is the world’s most under-screened major territory. Due to such deep shortage of movie theatres and screens, many of India’s moviegoers are simply unable to see movies in the theatre. The real estate market is down from last two years, which has directly affected the construction of malls. The revenue collected from these theatres is mediocre. Modern multiplex cinemas can charge ticket prices that are double of single-screen theatres. As they operate more efficiently, multiplexes can generate higher capacity yields and revenues per seat. India’s diversity proves to be a bane, producing films in more than 20 different languages. The regionalization, and linguistic politicisation, of the country’s movie business saps its overall strength. The average production and marketing costs are higher and profits are lower than they would be if India’s film industry was more integrated. Piracy is rampant here with hawkers selling illegal DVDs freely. Also, unlike any other business in India, movies must pay entertainment tax, which seem to classify them as a frivolous activity. Outside the ambit of a necessary service, they must also pay service tax, which implies they are necessary.

Alongside that, entertainment tax falls under the purview of the state government and is different for each state. Plus, there are huge licensing issues to set up a new multiplex. Also, the Indian market is price sensitive, with a sealing set on ticket price in some states.

While major single screens are converting in to multiplexes, some single screens are also adopting new technologies and running the business. Also, single screens should convert themselves as heritage property like Raj Mandir in Jaipur, Priya in Delhi, Maratha Mandir in Mumbai.

Malls have emerged in cities and small towns. Sometimes only a few shops are operational in a multiplex attached to mall. This impacts the business as well as consumer experience. Some malls have parking issues, which restricts footfalls. Public transport is an added issue at some of the places which also leads to loss. Malls are emerging in tier-II and tier-III towns, yet unavailability of Internet Service Providers proves to be an hindrance, with online tickets being a huge thing these days. In smaller places, there are restrictions in terms of seating and the number of auditoriums.

A lot of amendments need to be done to The Cinematograph Act. The act, catering to the single-screen era needs law as per multiplex business. India, being a diverse nation, entertainment tax falls under state government and is different for each state. Licensing woes keep multiplying, especially if that multiplex is first one in the state.

Licensing issues are grave for an Indian movieplex owner. Opening a new multiplex in an unchartered territory needs a lot of strings to be pulled. Without connections in the upper echelons, it is nearly impossible to open a multiplex in the current scenario.

Amit Sharma, Managing Director, Miraj Entertainment

The slowdown in the real estate sector has cast a shadow on the development of malls and hence fewer multiplex options are available, indirectly affecting the multiplex industry. In the last couple of years, we have observed that developers have not been constructing malls as they feel that these are not economically viable and have longer gestation periods compared to residential properties, where prices rise rapidly.

Additionally, the recent growth of e-commerce in India has majorly impacted retail growth in shopping malls across India. With the delivery of many malls across the country being delayed by a couple of years, the industry has lost out on many additional multiplex screens, which could have garnered more revenue to the industry.

In this scenario, I believe that the process can be sped up by converting single screens into multi-screens or demolishing existing ones and making new cinemas across the country. This would be a quicker solution, whereas multiplexes can run shows throughout the day as it runs with a smaller capacity and better appeal. However, the new REITs policy being approved by the government can again fuel the growth of malls in India.

The Constitution of India puts cinematography both in the Union List and State List for different purposes. While the central government is given the authority to certify films for exhibition (Censor Board), the state government is given the authority to regulate cinema theatres, the norms governing them, admission fee in theatres, restriction on late nights shows, number of shows etc has become a major hindrance to the growth of the multiplex industry in India.

Being a multiplex owner, we have to deal with multiple authorities, which also vary from state to state, to get approvals for licensing processes. In some of these states, the final license to run a cinema is issued by local authorities like the collector or commissioner. Also, in a few states like Maharashtra, the final cinema license is issued by the state government. In Andhra Pradesh, Telangana and Tamil Nadu, a government order is required for the number of shows and ticket pricing.

Over the last few years, profitability of single screen owners was unattainable as modern multiplex cinemas – with plush seats, better sound and viewing technology, a wide range of food on offer and better hygiene – became the venue of choice for upmarket cinemagoers. The single screens in the country are lagging far behind in offering such treats to our new generation. In my opinion, they may continue if they are able to upgrade to a more comfortable and luxurious experience.

A major concern is the lack of IT infrastructure to curb piracy. The industry has not been able to fully monetise its content due to rampant piracy as the government of India is not using its IT infrastructure to put an end to it. The government needs a robust legal ecosystem.

Technology is a double-edged sword and completely depends on the person using it. Technology has introduced new mediums to consume media and quality has also improved by leaps and bounds, eg, Dolby Atmos, laser projection and Imax. On the darker side, there’s piracy, which takes away a major chunk of revenue by allowing downloads of movies and music. With improved Internet speeds, it has become a menace.

The problem of piracy assumes different proportions in a country such as India with an area of 3.3 million sq km and a population of over 1 billion, speaking 22 different languages. It impacts all segments of the industry, especially films, music and television.

Most of the credible efforts to combat piracy have been initiated by industry bodies themselves. On the part of the government, lack of empowered officers for enforcement of anti-piracy law remains the key issue that is encouraging the menace of piracy. This, coupled with lengthy legal and arbitration processes are viewed as a deterrent to the crusade against pirates. We expect they should take more proactive measures to resolve this problem, which has a larger impact not only on the movie exhibition industry but also to the exchequer.

As mentioned earlier, we have to take permissions from so many authorities to get approvals to start our operations. Since there is no uniform law in India for movie exhibitors, the number of authorities varies from state to state, which takes up a lot of our time, resulting in business losses.

The emergence of multiplex screens in the last decade has dramatically changed the film exhibition space in the country, though there are still huge opportunities available for a rapid increase in the number of cinema screens in India. With this gradual growth story, the industry has also observed consolidation with a positive outlook along with the changing economic and social conditions of the country. Having said that, the industry is more keen on consolidation as it’s easier to merge or to acquire a movie exhibition company than to open a new cinema hall due to complex clearance processes in the country.

With acquisition, a company not only increases economy of scale but it also enables an enhanced penetration ratio. With this increased penetration, the company is able to generate more advertisement revenues. M&A also helps control operational costs as the core team of the organisation remains. On the other hand, M&A means merging two different technologies and cultural changes (as they may not follow the same technology and operational methods), which may raise concerns to manage a large format. Besides, single brand recall value also fades.

Arijit Dutta, Owner, Priya Cinemas

The growth in the number of screens is far less than hoped for and this negatively impacts return on investment (ROI). The ratio of screen-to-people is much higher in countries like the US and China, where ticket prices favour cinema owners. This is not the case in India.

First, land costs are very high, which doesn’t allow us to cover our costs. In a city like Kolkata, if a ticket costs Rs.200 or Rs.250, it is a deterrent unless it is a big film. So the ROI is impacted.

Also, each state has different tax policies, which affects the entertainment industry directly. Starting with land costs, labour costs, equipment costs and tax reforms, an exhibitor has to figure out the investments in each state and usually returns are not up to the mark.

It has becomes a corporates game, not the one individuals can play, but at the end of the day how much can corporates do? Earlier, we had large occupancy because individuals were involved. Now Bollywood has realised that an MBA graduate doesn’t understand the creative aspects of a script, so how can he green-light
a script?

At the end of the day, it is all about passion. Corporates can distribute films passionately; there is no doubt about that. Now we also see a decline in single screens due to lack of business. People are closing their theatres and are keeping them closed because, in smaller towns, there is little you can do even if you have a large quantity of land.

To tackle the high costs, we must solve the piracy problem, which is taking away 50 per cent of the revenue. Also, producers must not release their films on satellite for six months after the film’s theatrical release. That automatically forces the audience to come to cinema halls.

If they know the film is not too good, they will get to see it within two months on television. So if they can see it for free in two months at home, why would they go to a theatre or pick up a DVD worth Rs.60. Piracy and satellite rights have to be controlled.

Apart from the issues the business faces, there is one other thing – we, as an industry, need to unite. An exhibitor is a critical part of the film business as it is he who is in direct contact with the audience and he is the one catering the audience.

Ashutosh Agarwal, Director, StarWorld Cinemas

Movies are not doing well both in single screens and multiplexes because there is lack of good music in our films. Films like Aashiqui 2 were music-based and did phenomenally well. But, largely, in FY15 and FY16, there has been dearth of good music in our films. Producers and directors need to work on this.

The government has taken a step forward with the imminent introduction of GST. The tax structure will then become reasonable and unified. But the onus falls on exhibitors, to make cinema viewing experience comfortable for the audience and providing the latest technology at a reasonable price. It is therefore up to producers/directors to provide a choice of variety of genres. If this were to happen, it will be boom time in the industry again.

The growth of screens in India is slower than expected because there is a slowdown in the construction business and no new malls are being constructed by developers. Due to this, the growth of screens is currently restricted. Plus there is market consolidation underway – existing brands/operators are taking over smaller players by mergers and acquisitions or they are coming only in bigger towns. Hence the screen count is stagnant. Growth rate will pick up only when the construction business revives or when states offer incentives to construct new multiplexes.